Beck v. Pace International Union

who enjoys the fruits (whether in the form of lower plan contributions or sometimes a reversion of assets) if plan investments perform beyond expectations. See Hughes Aircraft Co. v. Jacobson, 525 U. S. 432 , 439-440 (1999). In this case, Crown served as both plan sponsor and plan administrator.

In March 2000, Crown filed for bankruptcy and proceeded to liquidate its assets. ERISA allows employers to terminate their pension plans voluntarily, see Pension Benefit Guaranty Corporation v. LTV Corp., 496 U. S. 633 , 638 (1990), and in the summer of 2001, Crown began to consider a “standard termination,” a condition of which is that the terminated plans have sufficient assets to cover benefit liabilities. § 1341(b)(1)(D); id., at 638-639 . Crown focused in particular on the possibility of a standard termination through purchase of annuities, one statutorily specified method of plan termination. See § 1341(b)(3)(A)(i). PACE, however, had ideas of its own. It interjected itself into Crown’s termination discussions and proposed that, rather than buy annuities, Crown instead merge the plans covering PACE union members with the PACE Industrial Union Management Pension Fund (PIUMPF), a multiemployer or “Taft-Hartley” plan. See § 1002(37). Under the terms of the PACE-proposed agreement, Crown would be required to convey all plan assets to PIUMPF; PIUMPF would assume all plan liabilities.

Crown took PACE’s merger offer under advisement. As it reviewed annuitization bids, however, it discovered that it had overfunded certain of its pension plans, so that purchasing annuities would allow it to retain a projected $5 million reversion for its creditors after satisfying its obligations to plan participants and beneficiaries. See § 1344(d)(1) (providing for reversion upon plan termination where certain conditions are met). Under PACE’s merger proposal, by contrast, the $5 million would go to PIUMPF. What is more, the Pension Benefit Guaranty Corporation (PBGC), which

Petitioner, the trustee of the Crown bankruptcy estates, appealed the Bankruptcy-Court decision to the District Court, which affirmed in relevant part, as did the Court of Appeals for the Ninth Circuit. The Ninth Circuit acknowledged that “the decision to terminate a pension plan is a business decision not subject to ERISA’s fiduciary obligations,” but reasoned that “the implementation of a decision to terminate” is fiduciary in nature. 427 F. 3d 668 , 673 (2005). It then determined that merger was a permissible means of plan termination and that Crown therefore had a fiduciary obligation to consider PACE’s merger proposal seriously, which it had failed to do. Petitioner thereafter sought rehearing in the Court of Appeals, this time with the support of the PBGC and the Department of Labor, who agreed with petitioner that the Ninth Circuit’s judgment was in error. The Ninth Circuit held to its original decision, and we granted certiorari. 549 U. S. 1177 (2007).

Crown’s operation of its defined-benefit pension plans placed it in dual roles as plan sponsor and plan administrator; an employer’s fiduciary duties under ERISA are implicated only when it acts in the latter capacity. Which hat the employer is proverbially wearing depends upon the nature of the function performed, see Hughes Aircraft Co., supra, at 444, and is an inquiry that is aided by the common law of trusts which serves as ERISA’s backdrop, see Pegram v. Herdrich, 530 U. S. 211 , 224 (2000); Lockheed Corp. v. Spink, 517 U. S. 882 , 890 (1996).

It is well established in this Court’s eases that an employer’s decision whether to terminate an ERISA plan is a settlor function immune from ERISA’s fiduciary obligations. See, e. g., ibid.; Curtiss-Wright Corp. v. Schoonejongen, 514 U. S. 73 , 78 (1995). And because “decision[s] regarding the form

or structure” of a plan are generally settlor functions, Hughes Aircraft Co., 525 U. S., at 444 , PACE acknowledges that the decision to merge plans is “normally [a] plan sponsor decisio[n]” as well. Brief for Respondents 13-14, n. 5,20-21; see also Malia v. General Electric Co., 23 F. 3d 828 , 833 (CA3 1994) (holding that employer’s decision to merge plans “d[id] not invoke the fiduciary duty provisions of ERISA”). But PACE says that its proposed merger was different, because the PIUMPF merger represented a method of terminating the Crown plans. And just as ERISA imposed on Crown a fiduciary obligation in its selection of an appropriate annuity provider when terminating through annuities, see 29 CFR §§2509.95-1 , 4041.28(c)(3) (2006), so too, PACE argues, did it require Crown to consider merger.

The idea that the decision whether to merge could switch from a settlor to a fiduciary function depending upon the context in which the merger proposal is raised is an odd one. But once it is realized that a merger is simply a transfer of assets and liabilities, PACE’s argument becomes somewhat more plausible: The purchase of an annuity is akin to a transfer of assets and liabilities (to an insurance company), and if Crown was subject to fiduciary duties in selecting an annuity provider, why could it automatically disregard PIUMPF simply because PIUMPF happened to be a multiemployer plan rather than an insurer? There is, however, an antecedent question. In order to affirm, the judgment below, we would have to conclude (as the Ninth Circuit did) that merger is, in the first place, a permissible form of plan termination under ERISA. That requires us to delve into the statute’s provisions for plan termination.

ERISA sets forth the exclusive procedures for the standard termination of single-employer pension plans. § 1341(a)(1); Hughes Aircraft Co., supra, at 446. Those procedures are exhaustive, setting detailed rules for, inter alia, notice by the plan to affected parties, § 1341(a)(2), review by the PBGC, § 1341(b)(2)(A), (C), and final distribution of plan

funds, § 1341(b)(2)(D), §1344. See generally E. Veal & E. Mackiewicz, Pension Plan Terminations 43-61 (2d ed. 1998) (hereinafter Veal & Mackiewicz). At issue in this case is § 1341(b)(3)(A), the provision of ERISA setting forth the permissible Tnethods of terminating a single-employer plan and distributing plan assets to participants and beneficiaries. Section 1341(b)(3)(A) provides as follows:

“In connection with any final distribution of assets pursuant to the standard termination of the plan under this subsection, the plan administrator shall distribute the assets in accordance with section 1344 of this title. In distributing such assets, the plan administrator shall—

“(i) purchase irrevocable commitments from an insurer to provide all benefit liabilities under the plan, or “(ii) in accordance with the provisions of the plan and any applicable regulations, otherwise fully provide all benefit liabilities under the plan....”

The PBGC’s regulations impose in substance the same requirements. See 29 CFR § 4041.28 (c)(1). Title 29 U. S. C. §1344 , which is referred to in § 1341(b)(3)(A), sets forth a specific order of priority for asset distribution, including (under certain circumstances) reversions of excess funds to the plan sponsor, see § 1344(d)(1).

The parties to this case all agree that § 1341(b)(3)(A)(i) refers to the purchase of annuities, see 29 CFR §4001.2 (defining “irrevocable commitment”), and that § 1341(b)(3)(A)(ii) allows for lump-sum distributions at present discounted value (including rollovers into individual retirement accounts). As PACE concedes, purchase of annuity contracts and lump-sum payments are “by far the most common distribution methods.” Brief for Respondents 45; see also Veal & Mackiewicz 72-73 (“The basic alternatives are the purchase of annuity contracts or some form of lump-sum cashout”). To affirm the Ninth Circuit, we would have to decide that

We believe it is. PACE has “failed to persuade us that the PBGC’s views are unreasonable,” Mead Corp., supra, at 725. At the outset, it must be acknowledged that the statute, with its general residual clause in § 1341(b)(3)(A)(ii), is potentially more embracing of alternative methods of plan termination (whatever they may be) than longstanding ERISA practice, which appears to have employed almost exclusively annuities and lump-sum payments. But we think that the statutory text need not be read to include mergers, and indeed that the PBGC offers the better reading in excluding them. Most obviously, Congress nowhere expressly provided for merger as a permissible means of termination. Merger is not mentioned in § 1341(b)(3)(A), much less in any of § 1341’s many subsections. Indeed, merger is expressly provided for in an entirely separate set of statutory sections (of which more in a moment, see infra, at 108-110). PACE nevertheless maintains that merger is clearly covered under § 1341(b)(3)(A)(ii)’s residual clause, which refers to a distribution of assets that “otherwise fully provide^] all benefit liabilities under the plan.” By PACE’s reasoning, annuities are covered under § 1341(b)(3)(A)(i); annuities are — by virtue of the word “otherwise” — an example of a means by which a plan may “fully provide all benefit liabilities under the plan,” § 1341(b)(3)(A)(ii); and therefore, “at the least,” any method of termination that is the “legal equivalent” of annuitization is permitted, Brief for Respondents 23. Merger, PACE argues, is such a legal equivalent.

We do not find the statute so clear. Even assuming that PACE is right about “otherwise” — that the word indicates

that annuities are one example of satisfying the residual clause in § 1341(b)(3)(A)(ii) — we still do not find mergers covered with the clarity necessary to disregard the PBGC’s considered views. Surely the phrase “otherwise fully provide all benefit liabilities under the plan” is not without some teeth. And we think it would be reasonable for the PBGC to determine both that merger is not like the purchase of annuities in its ability to “fully provide all benefit liabilities under the plan,” and that the statute’s distinct treatment of merger and termination provides clear evidence that one is not an example of the other. Three points strike us as especially persuasive in these regards.

First, terminating a plan through purchase of annuities (like terminating through distribution of lump-sum payments) formally severs the applicability of ERISA to plan assets and employer obligations. Upon purchasing annuities, the employer is no longer subject to ERISA’s multitudinous requirements, such as (to name just one) payment of insurance premiums to the PBGC, § 1307(a). And the PBGC is likewise no longer liable for the deficiency in the event that the plan becomes insolvent; there are no more benefits for it to guarantee. The assets of the plan are wholly removed from the ERISA system, and plan participants and beneficiaries must rely primarily (if not exclusively) on state contract remedies if they do not receive proper payments or are otherwise denied access to their funds. Further, from the standpoint of the participants and beneficiaries, the risk associated with an annuity relates solely to the solvency of an insurance company, and not the performance of the merged plan’s investments.

Merger is fundamentally different: It represents a continuation rather than a cessation of the ERISA regime. If Crown were to have merged its pension plans into PIUMPF, the plan assets would have been combined with the assets of the multiemployer plan, where they could then be used to satisfy the benefit liabilities of participants and beneficiaries

Third, the structure of ERISA amply (if not conclusively) supports the conclusion that § 1341(b)(3)(A)(ii) does not cover merger. As noted above, merger is nowhere mentioned in § 1341, and is instead dealt with in an entirely different set of statutory sections setting forth entirely different rules and procedures. Compare §1058 (general merger provision), §1411 (mergers between multiemployer plans), and §1412 (mergers between multiemployer and single-employer plans) with §1341 (termination of single-employer plans), § 1341a (termination of multiemployer plans); see generally Veal & Mackiewicz 31-40 (describing merger as an alternative to plan termination). Section 1058, the general merger provision, in fact quite clearly contemplates that merger and termination are not one and the same, forbidding merger “unless each participant in the plan would (if the plan then terminated) receive a benefit immediately after the merger ... which is equal to or greater than the benefit he would have been entitled to receive immediately before the merger ... (if the plan had then terminated).” (Emphasis added.)

As for the different rules and procedures governing termination and merger: Most critically, plans seeking to terminate must provide advance notice to the PBGC, as well as extensive actuarial information. § 1341(b)(2)(A). The PBGC has the authority to halt the termination if it determines that plan assets are insufficient to cover plan liabilities. § 1341(b)(2)(C). Merger, by contrast, involves considerably less PBGC oversight, and the PBGC has no similar ability to cancel, see Brief for United States as Amicus Curiae 24. And the rules governing notice to the PBGC are either different or nonexistent. Section 1412, the provision governing merger between a single and multiemployer plan (the form of merger contemplated by PACE’s proposal) makes no mention of early notice to the PBGC. And while mergers between multiemployer plans do require, 120-days

advance notice, § 1411(b)(1), this still differs from the general notice provision for termination of single-employer plans, which requires notice to the PBGC “[a]s soon as practicable” after notice is given to affected parties, § 1341(b)(2)(A). Belatedly, § 1341(a)(2) also requires that, in a standard termination, written notice to plan participants and beneficiaries include “any related additional information required in regulations of the [PBGC].” Those regulations require, among other things, that the plan inform participants and beneficiaries that upon distribution, “the PBGC no longer guarantees . . . plan benefits.” 29 CFR § 4041.23 (b)(9). (This requirement of eourse has no relevance to a merger, because after a merger the PBGC continues to guarantee plan benefits.)

PACE believes that these procedural differences can be ironed over rather easily. It insists:

“Many plan mergers take place without intent to terminate a plan; in those cases, the requirements for plan merger can be followed without consulting the requirements for plan termination. Conversely, many plan terminations take place without an associated merger; in those cases there is no need to consult the requirements for mergers. But if a plan sponsor intends to use merger as a method of implementing a plan termination, it simply must follow the rules for both merger and termination.” Brief for Respondents 36.

PACE similarly explains that while the PBGC does not approve “ordinary merger[s],” PBGC approval would be necessary when a merger is designed to terminate a plan. Id:, at 37. The confusion invited by PACE’s proposed framework is alone enough to condemn it. How could a plan be sure that it was in one box rather than the other? To avoid the risk of liability, should it simply follow both sets of rules all of the time? PACE’s proposal is flawed for another rea

son as well: It has no apparent basis in the statute. The separate provisions governing termination and merger quite clearly treat the two as wholly different transactions, with no exception for the case where merger is used for termination.

For all of the foregoing reasons, we believe that the PBGC’s construction of the statute is a permissible one, and indeed the more plausible. Crown did not breach its fiduciary obligations in failing to consider PACE’s merger proposal because merger is not a permissible form of termination. Even from a policy standpoint, the PBGC’s choice is an eminently reasonable one, since termination by merger could have detrimental consequences for plan beneficiaries and plan sponsors alike. When a single-employer plan is merged into a multiemployer plan, the original participants and beneficiaries become dependent upon the financial well-being of the multiemployer plan and its contributing members. Assets of the single-employer plan (which in this case were capable of fully funding plan liabilities) may be used to satisfy commitments owed to other participants and beneficiaries of the (possibly underfunded) multiemployer plan. The PBGC believes that this arrangement creates added risk for participants and beneficiaries of the original plan, particularly in view of the lesser guarantees that the PBGC provides to multiemployer plans, compare § 1322 with § 1322a. See Brief for United States as Amicus Curiae 29, and n. 11. For employers, the ill effects are demonstrated by the facts of this very case: By diligently funding its pension plans, Crown became the bait for a union bent on obtaining a surplus that was rightfully Crown’s. All this after Crown purchased an annuity that none dispute was sufficient to satisfy its commitments to plan participants and beneficiaries.

* * *

We hold that merger is not a permissible method of terminating a single-employer defined-benefit pension plan. The

judgment of the Court of Appeals is reversed, and the case is remanded for further proceedings consistent with this opinion.

It is so ordered.